market folly

Passport Capital's John Burbank earlier this year gave a talk at UC Berkeley Haas that's well worth your time watching.  In it, he lays out Passport's approach of combining three different types of investing: macro, fundamental, and quant.

He notes that all risk is backwards looking and hedging is for regression to the mean. 

He presented a concept that "Price is a liar."  He argues that, "Price means nothing other than the equilibrium of liquidity."  Counter that with the typical thinking that "Price is all the information that exists in the market."

He says that when something new happens it takes yeas for all the liquidity in the world to discount that thing

Burbank went on to say: "Do not imagine you know where we are in 2019.  The market doesn't, it has no idea."  That said, he laid out his best guesses for the next 5 years: low global growth, leading equities over fixed income, US over emerging markets, stronger dollar, favor quality & liquidity, innovation & governance win.

His longs have been positioned to benefit from a stronger dollar while his shorts the opposite (foreign companies that have borrowed in dollars, commodity exposed companies, etc.)  The Passport managers also feels that yields are going lower.

Burbank's talk is intriguing and thought provoking.  He also echoes another salient point that other investors have highlighted: you have to match your investing style to your personality.

Embedded below is the video of Burbank's talk at Berkeley:



For more from the Passport manager, head to Burbank's presentation at the SALT conference from earlier this year.